1.The current government has now been in power for over ten months. What do you think of the new policies put in place by the current Ministry of Energy and Petroleum?
The government has been trying their level best to get things back on track. In this process they have also reshuffled Ministries. Directorate General Petroleum Concession (DGPC) office announced a mini bidding round in which 10 blocks were offered in November 2018. They also formulated an energy task force, which is being chaired by Mr. Nadeem Babar who is also the Special Assistant to the Prime Minister on Petroleum, equivalent to the Minister of State.
Like any new government, this government had to deal with a lot of teething problems, as this is the first time they came into power. They have had to learn a lot especially since there are a lot of new people in the cabinet. I believe that the government has been very honest and sincere in its approach.
As the second largest company and the second largest tax payer, we hope that we will be able to influence the government in terms of formulating policies such as the policy for offshore, LPG, gas price, the new bid round and marginal gas. The Ministry of Energy Petroleum Division needs to work more closely with, the exploration & production companies, especially the public sector companies to resolve various issues faced by the Company such as Security, pricing, logistics etc.
2. Oil and Gas are by far the dominating source of Energy in Pakistan with a share of around 80%. Pakistan is consuming Liquefied National Gas (LNG), Liquefied Petroleum Gas (LPG) and coal. Please give us your output of the Oil and Gas sector in Pakistan?
Pakistan’s oil and gas sector is over a century old. The first well in Pakistan was drilled around 1866, near a big oil seepage of Kundal near the town of Isa Khel in Khyber Pakhtunkhwa. Only 7 years the first rotary well was drilled in Pennsylvania by Col Drake in the USA. Pakistan’s first oil production started in late 19 th century by the British India. They dug shallow hole to collect oil from Khattan oil seepage in Sulaiman foldbelt and produced it commercially. The first discovery was made in 1915 at Khaur in Potwar, that was 6 years before oil and gas was discovered in the Middle East. We have a pretty long but staggered oil and gas exploration and production history but the focus was primarily in the Potwar area. The exploration and production scene in the country is very interesting. Lower and Middle Indus Basin of Pakistan had been termed as a gas prone region after the Sui gas discovery (1952) and a number of other gas discoveries. In 1981, Union Texas Petroleum, which became ARCO, then British Petroleum and now United Energy Pakistan in Pakistan made its first oil discovery in the south in 1981 at Khaskheli and then started a string of discoveries, making the Sind lead the oil production for sometime.
3. Pakistan Petroleum Limited (PPL) has been a frontline player in the energy sector since the mid-1950s. PPL today contributes over 20% of the country’s total natural gas supplies besides producing crude oil, Natural Gas Liquid and Liquefied Petroleum Gas. What are your objectives for 2019 and 2020?
Pakistan has been producing 4 Billion cubic feet (BCF) of gas per day since 2006, now production has stagnated. Sui Northern Pipeline had 2 million customers in 2004 and now they have 6.5 million customers. Sui Southern Gas had 1.6 million customers in 2004 and now they have 2.8 million customers. The gas production has been the same for the past 14 years but the customer base has increased so there is a huge gap in demand and supply. The government decided to put up LNG plants. Now we have 2 LNG plants and they are supplying about 1.2 Billion cubic feet of gas per day. The installed capacity of SSGCL and SNGPL is around 7 BCF per day so with 4 plus 1.2 BCF there is still a constrained demand- supply gap of about 1.8 BCF while the unconstrained gas demand is about 12 BCF per day. The solution to resolve this gap is exploration, import and internationalization and reducing our dependence on oil & gas quite a bit and replace it with coal and renewables.
If we average out the data of the discovery over the last 50 years, though the number of discoveries have increasing exponentially, our discovery size has been decreasing drastically. Now our average discovery size is only 40 BCF, and with only 4 BCF per day of production, we are on a downward spiral in terms of our reserves.
Because of my multi international exposures, I am aware as to how the global energy system operates, how the energy security is attained. India is the ideal example; their international production is larger than their domestic production. They have grown huge by growing internationally at the right time.
I joined this company in 2004 and ever since then I have been trying to convince various
stakeholders to go international. We identified opportunities in Keny, Tanzania and Mozambique in 2005, when there was no or very little gas production. Now they are sitting on over 100 Tcf gas and a billion barrel of oil reserves. After a lot of effort the government finally allowed us to go to Iraq and Yemen. In order to attain the energy security, going international is crucial as then we are not constrained by the boundaries of our country and our horizon becomes huge. If our circular debt problem is resolved then we will have a lot of cash but we do not want to invest that cash specifically in Pakistan’s Frontier areas, we want to put our eggs in different baskets.
On a lighter note, there is a saying that if you want to grow you need to give the position of the CEO to the explorationist, if you want to maintain and enhance your production then you give it to the engineer, if you want the company to become stale and eventually die then you give it to finance people.
Our company is the second largest in terms of production, we have 47 exploration blocks of
which 28 are PPL operated, and the other 19 are in partnerships with other companies. Since 2012 we have drilled 56 exploration wells, discovered 3 Trillion cubic feet of gas in place of which 1.5 is recoverable and we have discovered about 88 Billion barrels of oil in place. We rejuvenated our exploration campaign in 2009-2010, when we acquired a lot of exploration blocks; 14 in 2010 and 10 in 2014.
If we look at our historical creaming curve, in the first 20 years, Pakistan discovered about
40% of Pakistan’s gas resources. We want to continue to do exploration; we are planning to drill 14 exploration wells in 2019-2020, and so on so forth.
This is, however, not going to resolve the energy crisis, for that we will have to diversify and we are working towards that strategy. There are three pillars on which this strategy stands; value creation, value preservation and value diversification. Value creation will continue to come through exploration and we will add non-renewable energies as well as coal and minerals into it. PPL operates a mining company in joint venture with the government of Balochistan called the Bolan Mining Enterprises. Right now we are mining Barite but in the near future we plan to mine Lead, Iron ore and Zinc. We are also embarking upon getting a license for copper mining. We expect to generate additional revenue with a turnover of 100 Billion US dollars in 2 years. In the next 10 years we plan to grow about 6% to 10% inn mineral sector.
4. The company is currently looking at diversifying its offering into power generation and mining. How are you looking into it?
PPL is working towards growth so we are moving in the direction of diversification such as
solar, renewable and mining. Pakistan’s energy mix is lopsided, you look at China’s energy mix, India’s energy mix, the major component in their mix is coal and we have a lot of resources in Thar coal which is the largest coal reserve in the world. Although it is a low-grade coal, technology has been developed to use lignite coal and generate energy. Thar coal was discovered in 1993 and we put up the first coal plant at a later stage. It seems there was a lack of commitment; there was lethargy and lack of vision because they did not care about creating the think tanks. PPL is also working towards generating power from couple of its low BTU gas fields. As for mining, I have already mentioned in response to your other question above.
5. The profitability of the company has increased by 36% as compared to the corresponding period last year (Third Quarterly Report). How has the company achieved such positive results and how do you plan to increase them even more?
Well, of course we have increased our oil and gas production, but honestly a lot of it is coming from the rising oil prices and massive rupee devaluation. On the other side, our debt component has increased tremendously during the past 6 years; in 2013-2014 it was 35 billion rupees, it is currently at 200 billion rupees. A major component of it is coming from the circular debt at the lower end; the customers. I blame it to a number of factors as I need to cut my spending on our exploration and development, which is our bread and butter. This is because of the lack of funds available and the liquidity crunch. Although we have recorded our highest ever profit, we are find it difficult to pay the dividend to our shareholders because our clients are not paying us.
6. PPL has received Pakistan Corporate Philanthropy Award for 14 consecutive years from 2004 to 2017. How important is CSR for PPL? And in which CSR projects are you involved in, lately?
The board has allowed us to spend 1.5% of our pre-tax profit on CSR activities, mainly health, education and water. Our programs are mostly focused around our operated areas and about 20% goes to our non-operational areas such as health, education and water to urban rural population. We have been spending over a Billion Rupees per year for the last 14 years.
7. You assumed charge as Managing Director & Chief Executive Officer of Pakistan Petroleum Limited (PPL) in January 2019 but your association with PPL dates back to 1983 when you joined the company as Junior Geologist. You also held positions in Union Texas Pakistan (now United Energy Pakistan Limited), Lasmo Oil Pakistan, Lasmo PLC, London and ENI Pakistan Limited, gaining experience with international exploration and production companies. What do you feel most proud of?
I have added 5.14 trillion cubic feet of recoverable gas reserves in the country through the blocks and the wells that I personally selected. Besides, I have published and presented over 40 articles in a number of domestic and international conferences in five continents. But, what I really take pride in is mentoring young professionals in turning them into full cycle explorationists. These people have been serving at PPL and other companies in Pakistan and abroad. Once again for the Company, PPL is the only company in the country, which is subsidizing the government to sell its gas at much cheaper price than our competitors on one account or another.
8. What is your final message to the readers of USA Today who consider Pakistan as a potential investment destination or are looking for partnerships in the Oil & Gas sector?
Unfortunately, the image of Pakistan is tarnished especially after 9/11. I worked for an American company in Pakistan from 1994 to 1998 and there were no problems, there were over a dozen American, Canadian and British oil companies working in Pakistan at that time the time. My own company had 24 Americans working out of Karachi. I would like to build a soft image of Pakistan, I am living here, I take pride in adding value to this country. I think the conditions in Pakistan are not bad as they are projected in the media and Pakistan’s foreign offices have to work hard to build that image. Besides, about 70% area of Pakistan is either unexplored or meagerly explored hence offering huge opportunities. The fiscal regime in Pakistan is one of the best in the world, especially the gas prices and exploration tax cuts through production.